Highlights
· Further improvements in customer satisfaction: our best AMP6 score on Ofwat's service incentive mechanism
· Effective acceleration of capital investment continues: £383m invested in first half, c£800m planned for full year
· On track to meet our 2015-20 totex and outcome delivery incentives (ODI) targets
· Innovation and new technology through Systems Thinking approach driving further operational improvements
· Attained industry leading company status as measured by the Environment Agency
· Operating profit slightly ahead of last year
· Good financial performance, robust capital structure and effective pensions hedging
· Interim dividend of 12.95 pence per share, an increase of 1.1% in line with policy
Key financials
|
|
Six months ended |
|
|
30 September 2016 |
30 September 2015 |
|
|
Revenue |
£853.0m |
£857.0m |
|
Underlying operating profit1 |
£312.5m |
£308.6m |
|
Operating profit |
£303.6m |
£278.3m |
|
Interim dividend per ordinary share (pence) |
12.95p |
12.81p |
|
RCV gearing2 |
62% |
59% |
1 Underlying profit measures have been provided to give a more representative view of business performance and are defined in the underlying profit measure table
2 Regulatory capital value or RCV gearing calculated as group net debt/UUW's shadow RCV (outturn prices)
Steve Mogford, Chief Executive Officer, said:
“This has been a strong first half performance in which we made significant progress towards meeting our customer, environmental and financial targets.
“Customer service has again improved, resulting in our best score under Ofwat's revised service incentive mechanism. We're continuing to enhance our customer service offering and recently launched Priority Services, to provide dedicated support for those who are experiencing short or long-term personal or financial challenges.
“The acceleration of our capital investment programme continues to deliver early customer service and operational benefits. We have invested £383 million in the first half of this year and remain on track to invest around £800 million for the full year. Our Systems Thinking approach to running the business continues to drive innovation into our operations and we are rolling out further capability this year, including new process technology.
“Our environmental performance has remained consistently high and we were delighted to attain industry leading company status from the Environment Agency.
“Overall, we are encouraged by our progress in the early part of this regulatory period. We have a robust financial position and are confident that we can deliver our targets for both customers and shareholders.”
For further information on the day, please contact:
|
|
|
|
Gaynor Kenyon – Corporate Affairs Director |
+44 (0) 7753 622282 |
|
Darren Jameson – Head of Investor Relations |
+44 (0) 7733 127707 |
|
Peter Hewer – Tulchan Communications |
+44 (0) 20 7353 4200 |
A presentation to investors and analysts starts at 9.00am on Wednesday 23 November 2016, at the Auditorium, Deutsche Bank, Winchester House, 1 Great Winchester Street, London, EC2N 2DB. The presentation can be accessed via a live listen in conference call facility by dialling: +44 (0) 20 7162 0125, access code 960611. A recording of the call will be available for seven days following Wednesday 23 November 2016 on +44 (0) 20 7031 4064, access code 960611.
This results announcement and the associated presentation will be available on the day at:http://corporate.unitedutilities.com/investors.aspx
KEY OPERATIONAL PROGRESS
We continue to deliver improvements in customer service, operational and environmental performance and these areas will remain top priorities as we move through the 2015-20 regulatory period.
· Further improvements in customer satisfaction– we have significantly improved the customer experience over recent years and are pleased to have improved our service incentive mechanism (SIM) performance further, as measured through both Ofwat's wave one and wave two 2016/17 qualitative scores. We achieved our best score so far in this regulatory period, placing us above the industry average, with our customers rating us highly for our billing and wastewater services.
We recently launched our Priority Services offering, to provide targeted support to customers who are experiencing short or long term difficulty in their lives, such as suffering physical or mental illness, as well as those in financial difficulty. This is in addition to the wide range of initiatives we currently offer those customers struggling to pay, to help them get back into regular payment.
Improving customer service continues to be a key area of focus and our new management team has identified a range of opportunities to deliver further benefits for our customers.
· Innovation through Systems Thinking – as part of our Systems Thinking approach to the way we run our business, we are being more proactive in the management of our assets and networks and are driving innovation through integrating the use of our assets, leveraging data intelligence and employing new technology and work processes. We aim to improve our predictive modelling through better use of sensors in our network and better analysis of other data, such as weather forecasting, to enable us to address more asset and network problems before they affect customers, thereby reducing the level of reactive work and improving performance and efficiency.
Our new telemetry backbone has been successfully installed across our region. This provides the data highway between our sites and our integrated control centre, enabling enhanced monitoring and intervention. We have full regional production planning up and running for both water production and sludge processing, supported by more enhanced decision-making systems capability at site level.
We piloted design for manufacture and assembly (DfMA) in AMP5, the prefabrication of a significant proportion of projects off-site and are targeting over 75% of our projects in AMP6 to employ this approach. DfMA delivers improvements in safety, quality and maintainability and reduces build time on site, lessening disruption to the local community and site operations. DfMA also supports product standardisation and we are increasingly using common designs across our supply base, saving duplicated design costs and offering production and maintenance efficiencies.
Following successful trials, we are using a new process technology innovation, Nereda, that offers significant efficiency and cost saving benefits in wastewater treatment. Not only does it reduce the time wastewater has to sit in the tank as it goes through the activated sludge process, it also requires less oxygen which reduces power consumption. We recently contracted for our first Nereda plant in Kendal, the first in the UK of significant size. We are targeting up to a 20% through life cost reduction by using this technology. Other site applications will follow.
· Leading operational and environmental performance – in July, we attained industry leading company status, as measured through the Environment Agency's (EA) annual assessment. In particular, we delivered another strong performance in the area of pollution and are one of only two companies to attain a Green rating for serious pollution incidents. In addition, we are committed to reducing our carbon footprint and increasing our generation of renewable energy. We reduced our carbon footprint by 22% over the last 10 years and progress in the first half of 2016/17 is encouraging.
· Effective acceleration and delivery of investment plan – acceleration of our 2015-20 investment programme continues to deliver early customer service, operational and environmental benefits, enhance resilience and optimise performance under our ODIs. We continue to drive more effective and efficient delivery of our capital programme and this is reflected in our Time: Cost: Quality index (TCQi) score which remains high at over 90%, despite a tougher measurement mechanism being applied for this regulatory period.
· Improving our bad debt performance – we maintained our strong focus on managing bad debt and cash collection and improved our performance in the first half of 2016/17 and reduced household bad debt to 2.8% of regulated revenue, from 3.0% in the first half of last year. We have made a good start to the year. However, notwithstanding our industry-leading debt management processes and wide-ranging schemes to help customers struggling to pay, as our region suffers from high levels of income deprivation, this will remain a principal challenge for us.
· Delivering shareholder value through regulatory outperformance – the low cost of debt we have already locked-in places UU in a strong position to deliver our target for the 2015-20 period of beating Ofwat's industry allowed cost of debt. We are making good progress, implementing initiatives to deliver over £400 million of savings to meet our totex allowance. Operationally, we delivered a good performance on our ODIs in 2015/16 and are making good progress this year. We are pleased to see continued strong performance in the areas of private sewers and pollution incidents.
· Environmental focus on leakage – we have consistently met or outperformed our regulatory leakage targets and performance to date keeps us on track to meet our 2015-20 targets, as set by Ofwat.
· Strong environmental, social & governance (ESG) credentials – we have received external recognition for our strong corporate responsibility and environmental credentials. In September 2016, we retained World Class rating in the Dow Jones Sustainability Index for the ninth consecutive year, a very good achievement in light of the ever evolving standards. In addition, at the Finance for the Future Awards in October 2016, UU won the Communicating Integrated Thinking award. This international award was sponsored by Deloitte, Accounting for Sustainability and the Institute of Chartered Accountants in England and Wales. This follows on from the PwC 2015 Building Public Trust Awards, when UU was selected as joint winner for Excellence in reporting in the FTSE 100.
· Non-household retail: Water Plus JV with Severn Trent completed on 1 June 2016 – we have been building our capability to ensure that we are in a strong position as the competitive non-household retail market evolves. Our Water Plus JV with Severn Trent, which completed on 1 June 2016, reinforces this position and gives us first mover advantage ahead of full market opening in April 2017. Water Plus combines the complementary skills of both companies to deliver an attractive proposition for customers and will create synergies to provide an efficient and cost-effective operation focussed on improved customer service and growth. The new Water Plus operations are up and running and we are well placed to compete.
OUTLOOK
We are encouraged by our continued strong operational and environmental performance, as well as our improvements in customer satisfaction. We have plans to improve further, supported by our Systems Thinking approach to operating the business and the acceleration of our capital investment programme. Overall, we are encouraged by our progress in the early part of this regulatory period. We have a robust financial position and are confident that we can deliver our targets for both customers and shareholders.
FINANCIAL OVERVIEW
The group has delivered a good set of financial results for the six months ended 30 September 2016.
· Revenue – was down £4 million, as expected, at £853 million, reflecting the accounting impact of our Water Plus JV, which completed on 1 June 2016, partly offset by our allowed regulatory revenue changes.
· Operating profit – underlying operating profit was up £4 million, at £313 million. This reflects the new regulated price controls, slightly lower infrastructure renewals expenditure, a small decrease in depreciation, as we recognised some accelerations in depreciation in the first half of last year, and a small decrease in the remaining cost base, partly offset by the accounting impact of our Water Plus JV. Reported operating profit was £304 million, up £25 million, mainly as a result of reduced profit in the first half of last year principally due to costs associated with the water quality incident.
· Capex – total regulatory capital investment in the first half of the year, including £73 million of infrastructure renewals expenditure, was £383 million, in line with the company's plans to accelerate the 2015-20 investment programme, and we remain on track to deliver a total of around £800 million of regulatory capital investment for the full year. In addition to our c£3.5 billion five-year regulatory capex programme, we plan to invest over £100 million in non-regulated projects across 2015-20, subject to acceptable returns, principally relating to solar power, and we have now invested a total of £37 million during the last 18 months.
· Profit before tax – underlying profit before tax was down £16 million to £189 million, as the £4 million increase in underlying operating profit was more than offset by a £19 million increase in underlying net finance expense. The increase in underlying net finance expense is mainly due to the impact of higher RPI inflation on our index-linked debt. Reported profit before tax was £158 million, reflecting fair value movements and other adjusting items as outlined in the underlying profit measures table.
· Profit after tax – underlying profit after tax was down by £11 million to £152 million. Reported profit after tax was higher at £203 million, mainly reflecting a deferred tax credit as a result of the UK Government's future planned reduction in the mainstream rate of corporation tax.
· Capital structure – the group has a robust capital structure with gearing of 62% as at 30 September 2016 (measured as group net debt to 'shadow' regulatory capital value). Our shadow RCV adjusts for actual spend and was £10.5 billion as at 30 September 2016. This gearing level is comfortably within our target range, of 55% to 65%, supporting a solid investment grade credit rating. United Utilities Water Limited (UUW) has long-term credit ratings of A3 with Moody's, on stable outlook, and BBB+ with Standard & Poor's, on positive outlook.
· Financing headroom – the group now benefits from headroom to cover its projected needs into 2019, enhanced by the recent raising of new finance. This headroom provides good flexibility in terms of when and how further debt finance is raised to help refinance maturing debt and support the delivery of our regulatory capital investment programme.
· Dividend – the board has declared an interim dividend of 12.95 pence per ordinary share, an increase of 1.1%, in line with our policy of targeting an annual growth rate of at least RPI inflation through to 2020.